New condo pre-sales are making a comeback in San Francisco as developers rush to take advantage of an historic low inventory.

With the number of available new condos projected to hit all time low of 115 units by the end of this year, developers are scrambling to bring new projects to market as soon as possible. At 1998 Market St., the 114-unit project now called Linnea, joint venture partners Canyon Johnson Urban Funds and Brian Spiers Development are planning to open a sales office in May, about seven months before the project is scheduled to be delivered. At 1800 Van Ness Ave., Oyster Development aims to have a sales office up and running by March, about nine months before the project — a 98-unit development called Marlowe — opens.

Polaris Group, a sales and marketing company for new condos that is handling both Marlowe and Linnea, forecasts that year-end standing inventory of new condos will remain below 200 over the next three years. By the end of 2013 there should be 156 units available, a number that jumps to 192 units in 2014 and declines to 165 units in 2015, according to Polaris. The 2012 year-end inventory of 115 units represents an 88 percent decline from the 938 units that were on the market at the conclusion of 2009.

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Projects expected to sell out early next year include 419-unit Millennium Tower, which has about 35 units available, and the 165-unit One Hawthorne, which is down to eight penthouses.

At the Madrone development in Mission Bay, Bosa Development has closed 211 of 329 units, and it has another 114 units in contract. That leaves just four units to sell, according to Alan Mark of the Mark Co., which is handling sales and marketing for Madrone.

“We have to keep moving the model units because people want them,” said Mark.

The new interest in condos comes as the vast majority of the housing under construction in San Francisco is rental apartments. Currently about 3,500 apartments are under construction, including Crescent Heights’ 719-unit development at 10th and Market Streets and Trinity Properties’ 440-unit tower at Eighth and Market. UDR is putting up 315 apartments in Mission Bay, and Emerald Fund is nearing the finish line at 333 Harrison St., where 308 rental units are being built.

While typically some rental projects are converted to condos when the for-sale market bounces back, Polaris Group Partner Chris Foley argues that it will be less than 20 percent. Many apartment developers are real estate investment trusts, which are not structured to do for-sale development. Other projects are bankrolled by pension funds that specifically allocate funds for rental apartments.

“At least 75 percent cannot be converted or will not be converted because of the organization that owns it or the capital structure,” said Foley. “Is AvalonBay going to condo at 55 Ninth or Parcel P? They are not. Is MacFarlane Partners going to convert at 1844 Market? Their capital structure won’t allow it.”

The bullishness is driven in part by the success of smaller projects that have come to market. Last spring the 36-unit 299 Valencia sold out in two months with an average price per square foot of $860.

This month the 14-unit 411 Valencia sold out in three weeks with an average price per square foot between $900 and $1,000, according to James Nunemacher of Vanguard Properties. Units range from 500 to 800 square feet. “There is a voracious demand for the Mission District — we have had to turn a lot of people away,” he said. “It’s a totally different neighborhood than it was a year or two ago. It’s not up and coming. It’s come.”

Still, the rush to open sales offices well before the completion of the projects brings back memories of 2008, when hundreds of buyers walked away from condo contracts, and developers were stuck with a bunch of empty condos they couldn’t move. But developers and condo marketers point out that today banks are requiring more money down and better credit, and buyers are borrowing at a much lower rate than they were five years ago. “When people were buying before, the money was so cheap you (got a) loan with no money or credit,” said Foley. “Today the buyers are putting more down. They have to have good credit and there is no inventory. It’s a totally different world.”

J.K. Dineen covers real estate for the San Francisco Business Times.

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